Wage Growth Outlook
Wage growth is forecast to cool but remain high across measures. Headline average weekly earnings are seen at 3.8% (3m/y), versus the market at 3.9% and prior at 4.2%. Average weekly earnings excluding bonuses are projected at 4.0% (3m/y), matching the market and down from 4.2% previously. Private earnings excluding bonuses are forecast at 3.5% (3m/y), in line with the market and up from 3.4%. The note links weaker labour readings with conditions that have supported Bank of England policy easing in the past. It adds that near-term attention may turn to inflation effects tied to the Iran conflict rather than UK data alone. Last year, in 2025, we were watching for the UK labour market to loosen significantly, with unemployment expected to hit its COVID-era peak of 5.3%. This outlook was based on the idea that a weaker jobs market would support the Bank of England easing its policy. The situation has since evolved, providing a clearer path for traders.Market Implications For Traders
That severe loosening never fully happened, as the latest Office for National Statistics data shows UK unemployment holding at a more resilient 4.5% in the three months to January 2026. This strength has given the Bank of England justification to hold rates steady so far this year. It suggests the underlying economy is stronger than was anticipated back in 2025. Wage growth, however, has remained elevated as predicted, with average weekly earnings ex-bonuses currently at 3.9%. This stickiness, combined with a core inflation rate that is still hovering around 2.8%, explains the central bank’s ongoing caution. The geopolitical inflation fears from the Iran conflict that were a focus in 2025 have thankfully not led to a sustained energy price shock. For derivatives traders, this means the case for imminent and deep rate cuts has weakened. We see an opportunity in fading the market’s more dovish expectations for the Bank of England’s summer meetings. Positioning through SONIA futures to reflect a later start to the easing cycle, perhaps in Q3 2026 rather than May, is a logical response. Volatility in sterling assets remains a key theme, meaning option strategies are attractive. Given the resilience of the labour market against still-high wage pressures, the risk of a policy mistake from the Bank is non-trivial. We believe buying straddles on the FTSE 100 could be an effective way to position for a potential spike in volatility around future MPC meetings. Create your live VT Markets account and start trading now.
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